28 & Bankrupt.....Budget Setting Questions

[jasdavis09]

i think everyone needs a budget tailored to their lifestyle. i really don't believe in any of these 'formulas' that books and other financial gurus suggest.
picture this:
a woman or man earning 300 a week, in your 60% budget, would have to be saving $120 a week and that only leaves $180 for living expenses. how does that work???
a woman or man earning 300k a year would be saving 120k but would have 180k for living expenses. i don't know about you, but that's a lot of living expenses!

I agree with you on both of your pionts. I must admit that I am having a hard time managing our budget to the 60% rule. Our bigest challange is that I am on commision at my job and my income changes drematicaly each month. I am trying to manage our budget from the low end of my income scale and now even that its getting hard. The way it is going at work right now I am going to be at the same income level as when I was 19.

[jIM_Ohio]

I agree with you on both of your pionts. I must admit that I am having a hard time managing our budget to the 60% rule. Our bigest challange is that I am on commision at my job and my income changes drematicaly each month. I am trying to manage our budget from the low end of my income scale and now even that its getting hard. The way it is going at work right now I am going to be at the same income level as when I was 19.

I would not look for a book to tell you how to budget. You just need a detailed financial plan.

Bottom line 1- spend only 80% of what you earn- regardless of income level. That means right now not much extra will be in your budget (low commissions).

As your situation restores itself (earning close to "full" commissions), you need to take some steps.

1) Establish your base budget based on only salary income. Might make sense for spouse to work part time to increase this baseline. Try as best you can to live on 80-90% of your base pay (if you spend 100% of it, things can get worse quickly).

2) Establish a savings rate- I use 20% as my recomendation. meaning spend 80% and save 20%.
Put 15% towards retirement and 5% towards short term spending/ short term financial goals. Vacations, kids college, new cars, pay down mortgage- use the 5% to what makes sense to you.

3) Make sure you have 24 months expenses in savings. I would use the 5% to build up this account. Keep 6 months savings in cash, and the other 18 months expenses in a LIQUID investment. Might be a conservative mutual fund, municipal bond fund, higher return bank account or savings bonds (TIPs). Some of this might be a tax decision, but stability of principal is important year over year. I use PRPFX for this portion of my investments.

4) as you earn commissions it is OK to increase spending, just mind the 20% rule- the first 20% of what you make goes to savings. Put 15% to retirement and 5% to short term savings. If you do not have the 24X in savings, you might choose to do 40-60 or 50-50 instead of 80-20.

Measure your financial success by your savings rate and money in the bank, not what you can spend the money on. Much of your past problems were related to spending. You need to challenge yourself to keep what you earn (not spend it).